There are many differences between regular and binary options. The primary three differences are expiration time, payout and execution. Let’s take a closer look at each of these differences.
First, expiration time is very different. Binary options can offer as short term as one hour expiration time. The short term multiple expiration times means investors can make an instant profit on their binary options and are more flexible in their option investments. Expiration time in regular options can be weekly, monthly or even longer term when LEAPS are considered.
Secondly, payouts are very different. With regular options, an investor pays per contract (i.e. point). Subsequently the investor will profit or lose an amount depending on the number of points difference between the expiration level and the strike price. In binary options win or lose the outcome is set in advance. The investor knows exactly how much he will win or lose BEFORE entering the trade. This knowledge can be a serious edge in trade management.
Thirdly, expiration is different between a regular and binary option. An investor must hold onto his binary option until the expiration time. He must therefore take more care when purchasing his options as he cannot sell them once they are purchased. Some binary option brokers do offer roll over options, however. This option allows the investor to extend the time of his option past the original expiration time. Other binary option brokers may allow investors to close out their winning positions prior to expiration to lock in albeit lower profits. Check with your broker to see what if any expiration specials they may offer.